Paudge Connolly (Cavan-Monaghan, Independent)
Link to this: Individually | In context

Question 106: To ask the Minister for Finance his plans to control the degree of credit card debt, which is double the 2006 level; and if he will make a statement on the matter. [4305/07]

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

As the Minister for Finance, I am charged with putting in place an appropriate and robust legislative framework for the regulation of the financial services sector, with a particular focus on the consumer. I am satisfied that such a framework has been in place since the Financial Regulator and the Financial Services Ombudsman's Bureau were established. All credit card providers must comply with the regulator's consumer protection code, which states that the providers of financial services must not provide financial products other than those which are suitable for the relevant consumer. When credit institutions change their interest rates, they must state the effective date of the new rates and update the interest rate details on their information services as soon as the changes come into effect. The limits on credit cards cannot be increased unless such increases are requested by consumers. The Financial Regulator spends significant time and uses considerable resources to inform consumers about the potential risk of excessive credit card debt. Credit card cost surveys, which have been undertaken by the Financial Regulator, are available to help consumers to choose the credit card that best suits their needs. The Financial Regulator recommends that consumers take on the right type of credit for the right purpose — credit cards are not suitable for long-term debt as rates are considerably higher than other forms of credit. The Financial Regulator issues information to help people who have problems with credit card debt. This information is available through its publications, helpline and website. The Minister may wish to note——

Paul McGrath (Westmeath, Fine Gael)
Link to this: Individually | In context

That is a death wish.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

I was referring to the Minister of State, Deputy Parlon, who has an interest in this question as well.

Paul McGrath (Westmeath, Fine Gael)
Link to this: Individually | In context

It could happen.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

The Deputies opposite are not on my horizon.

The Deputy may wish to note that credit card debt represents less than 2% of personal sector credit and less than 1% of overall private sector credit. In addition, credit card data refers to debt outstanding on all credit cards at the end of the month and includes balances that may be paid in full at the payment due date. The increase in the number of credit cards issued and the amount of debt outstanding is in line with a general trend of increased market penetration in the EU and a move towards electronic retail payment methods.

Paudge Connolly (Cavan-Monaghan, Independent)
Link to this: Individually | In context

I am sure the Minister will agree that the level of debt at this time of the year inevitably leads to a major debate about access to credit and credit card limits. It has been reported that an additional €166 million was spent last Christmas. While that may be good for business, people will eventually suffer if their purchases are made using credit cards. Total debt for December stood at €1.2 billion. Given that credit card debt has increased by 15.8% over the last year, does the Minister intend to introduce any measures to control the credit limits which are offered by banks to card holders? Does he have any proposals to deal with non-mortgage credit, which increased by 31.7% in December 2006? Does he appreciate the inflationary effects of increased credit card debt and its potential dangers for the economy? Does the Minister have any plans to control total lending in the economy, which increased by €59 billion in 2006? Does the Minister agree that excessive credit card limits encourage people to live beyond their means? Misery is heaped on people when their credit card bills are pushed through their letter boxes, particularly at this time of the year. The banks dream about people who are bad at managing their money because they made their real money from such cases.

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

Current levels of credit debt could become a cause of concern if they continue. However, I do not believe the current levels of indebtedness represent a substantial risk to the economy. It is to be expected that consumers seek to make use of the continuing levels of interest rates, which are historically low. Nevertheless, I fully support the vigilance of the Central Bank and the Financial Regulator on the issue of personal credit and mortgage debt, in reminding borrowers and lenders of the need for responsible behaviour. The high proportion of household indebtedness in Ireland relates to borrowing for house purchases which, in turn, involves the acquisition of an asset for such households. In the same way, borrowing by the business sector, which generally underpins investment, and the creation of business assets, which yield future income, reflect the strong performance of the economy and confidence in our economic prospects.

As far as overall economic and financial stability is concerned, an overall measure of credit encompasses both public and private sector credit and debt levels. The Minister for Finance has a key role in this regard in ensuring prudent management of the budget and overall sustainability of the public finances. In this context, our fiscal performance is among the best in the developed world, with Government indebtedness the second lowest in the euro area. Responsible budgetary policy has made a significant contribution to economic performance overall and to the achievement of record employment levels.

With regard to the issue of what legal protection consumers get in the face of increases in the cost of credit, the provision of consumer credit in Ireland is effectively regulated by the Consumer Credit Act 1995, which is administered by the financial regulator. It obliges credit providers to include specific information in all credit agreements with regard to such matters as the total cost of credit, the amount of each repayment instalment, the number of instalments and so forth. The purpose of obliging credit providers to provide this information is to ensure that consumers, when making credit decisions, are armed with full information about any credit agreement they are entering into and, most importantly, the impact that servicing a loan will have on the consumer's household budget.

On the issue of Ireland's private sector debt to income ratio, I fully support the vigilance of the Central Bank and the financial regulator with regard to personal credit and mortgage debt. House mortgage finance represents approximately 83% of the outstanding stock of personal debt. Accordingly, a high proportion of private sector indebtedness in Ireland relates to borrowing for house purchase, which in turn involves the acquisition of an asset for the households concerned. In the same way, borrowing by the business sector generally underpins investment and the creation of business assets, yielding future income.

As far as looking after the interests of the individual borrower and investor is concerned, the function of government is to provide an appropriate legislative framework for regulation of the financial services sector that is both comprehensive and robust. Within the implementation of the overall legislative framework, private sector credit debt and growth levels are, in the first instance, a matter for the Central Bank and Financial Services Authority of Ireland. This follows from its role as part of the European system of central banks and its functions as the financial regulator in the prudential supervision of financial institutions and the protection of the customers of those firms. In this regard, I fully support the vigilance of the Central Bank and the financial regulator regarding these matters.

Paudge Connolly (Cavan-Monaghan, Independent)
Link to this: Individually | In context

I accept that credit agreements and arrangements are regulated. The difficulty is that they are not capped or kept under some level of control. It was indicated at one time that the Money Advice and Budgeting Service, MABS, would be put on a statutory basis. That body provides a great deal of useful and beneficial information to people who get into trouble with debt. Putting it on a statutory footing might encourage people to go to it. Are there plans to put the service on a statutory basis?

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

The Money Advice and Budgeting Service was established to help people manage their money with a view to regaining control of their finances, including how to avoid falling into difficulty as a result of debt. MABS provides an extensive range of money advice, personal budget and community education services where necessary and liaises with financial institutions on behalf of clients. There are 52 independent companies nationwide operating the service. In 2006, a sum of €16.4 million was provided to fund the service, representing an increase of 20% on the previous year. This year, I further increased the annual allocation to €17.64 million. Last year, almost 27,000 people availed of the service, compared to 18,000 in 2001.

I also note the measures proposed by the National Youth Council of Ireland in its report, Can You Credit It: The Real and Growing Cost of Credit Cards for Young People, to better protect young consumers, such as a minimum balance warning and an annual statement outlining all interest and fees paid. I welcome that report, which raises many important issues regarding young people and their management of credit card debt. It is further evidence of the increased awareness of the importance of consumer protection in the financial services area. The financial regulator is examining the report prepared by the National Youth Council of Ireland and this will inform its study of the transparency of information provided to all holders of credit cards.

I understand from the discussion on the Order of Business yesterday that the Money Advice and Budgeting Service Bill is to be introduced this year.